Low-Income Developer Accused of Defrauding Taxpayers

May 17, 2011
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A nonprofit housing group in Dallas, Tex., recently claimed that a developer schemed to defraud the government of millions of dollars in low-income housing tax credits by forging signatures, stealing building plans, and signing fraudulent tax credit applications. According to the group's federal RICO complaint, when the developer's first group of partners was "appalled" at the scheme, and refused to do it, he found others who did.

Texas law requires developers receiving low-income tax credits to have experience in tax credit applications; new developers can qualify only if they bring in an experienced "co-developer," according to the complaint. The Urban Progress Community Development Corporation's president says she agreed to help the developer for a reduced co-developer fee of $50,000 and that the developer was awarded two multimillion-dollar contracts as a result.

"It was during this time period that plaintiffs first learned of the developer's fraudulent scheme," according to the complaint. "At a meeting in the developer's attorney's office, the developer detailed his intent to pocket not only the huge upfront developer fee, but also an additional $1.1 million from unused materials on the construction side of the transaction. As the developer explained, there would be two sets of contracts, one set would be turned in to the government, stating that all construction funds had been properly used, and a second set of contracts would actually be signed with low-bid general contractors for a lower amount. By this action the developer intended to pocket approximately $1.1 million without the government knowing."

The nonprofit group's president says that when the developer announced the scheme at a subsequent meeting, the contractors and architects were "appalled" and would not participate, but the developer "was adamant that the scheme would proceed and that if the parties would not assist him he would find parties that would."